My Experience Investing in a Changing Real Estate Market

I quit my corporate job in 2005 to pursue real estate fulltime. I had listened to Carlton Sheets’ “Zero Down Investing” course multiple times the year leading up to my departure from my day job while trying to learn as much as I could. Flipping through study guides and reading real estate books only served to increase my appetite for this industry. I remember the excitement of learning these concepts with the hopes of one day putting it all into practice.

My entrance into real estate involved training from a start-up company out of Seattle, WA. They had developed a training system for producing real estate transactions that involved pairing investors and lease-purchase tenants. The idea was that an individual who couldn’t qualify for financing would choose a house and the investor would buy the property and lease-purchase it back to the tenant for a higher amount. The tenant would then go into a credit counseling program with the intention of improving credit to the point where he or she could qualify for a mortgage and buy the property back from the investor. I was able to carve out profit by putting the property under contract (with a willing lease purchase tenant) and then assigning my interest to the end investor with a built-in assignment fee of a few thousand dollars.

The model worked great for the first couple of years, but gradually became more difficult as the industry changed. In just 2 short years, my program began to fall apart for a number of different reasons. First, investor financing went from 100% financing to 95% to financing to 90% financing all within less than 24 months. Investors who had been used to getting unbelievable leverage were less inclined to buy investment properties with increased down payment requirement. Second, banks began to tighten on the assignment fee we had written into the contract, and no longer wanted to allow our investors to finance this fee into their loan. Third, the financing options available to our lease-purchase tenants began to get very difficult as subprime mortgages started to go away and FHA financing standards got tighter. In addition to all of this, investors began to see the real estate market slow down and were no longer willing to bank on appreciation. Values began to grow stagnant and real estate activity on a whole gradually began to taper off.

Fast forward to today and I can tell you that my first 2 years in real estate gave me an education that no real estate course could have taught me. While I learned the ins and outs of contracts, marketing, tenant placement, etc. – the number one lesson I learned was the importance of changing with the market. None of the books or courses I had read ever mentioned anything about the speed at which things can change and the need to adapt to market changes. It took constant head scratching and strategy sessions to make sure I could continue to run a business that was relevant, applicable and profitable in an ever shifting real estate industry.

If there was one lesson I would pass on to new investors (especially those who plan to do this full-time) – don’t ever get comfortable in your approach to real estate. From lending guidelines to inventory shortages to increasing competition, etc., there will always be changes that challenge the way we approach real estate. To stay in this business, it takes creativity and a drive to know your market and stay ahead of the curve.

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About Author

Ken Corsini G+ is the host of the Deal Farm Podcast (on iTunes) and has 10 years of full-time real estate investing experience. His company, Georgia Residential Partners buys and sells an average of 100 deals per year and has helped hundreds of investors around the country make great investments in the Atlanta market.
Ken has a business degree from the University of Georgia and a Master Degree in Building Construction from Georgia Tech. He currently resides in Woodstock, Georgia with his wife and 3 children.

6 Comments

You make a good point Ken… there are many dynamics to real estate investing. We have to always position ourselves on the front edge of things. Those who are slow to adapt are those who get beat up by the changes instead of using them to their advantage – it is a cost and not a profit.

The great part is that once you’ve been around for a while and you can see the overall market cycle, you know how to capitalize on each particular segment of that cycle. You know the constants within the variables… having answers before the question is even presented.

Not only do you have the world around you changing, you also are changing. What you considered as a fun investment yesterday today seems dull and the investment of today does not keep up with what you will want tomorrow. We started with Single Family Homes and were 100% for these. Then we figured out apts had a better ROI so moved into apartments. After 10 years we got burnt out on apts so got into MHPs. If we ever get burnt out on MHPs we will probably sell them and just look at financing properties instead of buying & renting them. You change and what works/doesn’t work in investing changes. You have to be able to adapt both ways or you will be left out. When you quit changing – it will be time to retire from the business.

Ken, I believe that relying on banks is risky. I have been buying on lease option or contract for deed (as a principal) and then selling my interest to a tenant buyer – vendee since 1985, and leaving the financing success up to the buyer’s willingness to work on their borrowability (credit, debt, etc).

Well written, humbling post, and very true. I’d add that, while you sure as hell need to be flexible and roll with the times, there’s also a lot to be said for not panicking and sticking to your guns with resilient focus. ups and downs, booms and busts are all part of the repeated cycles of property markets, all markets really. If the long term strategy works, cycles shouldn’t break it to pieces.